Bespoke Investment Group

Chartfinder Challenge

For those now following us on Twitter (www.twitter.com/bespokeinvest), be sure to check out our new Chartfinder Challenge that we plan on posting each Friday.  The first person to reply on Twitter with the correct stock ticker will get a free month of Bespoke Premium.

Earnings Season Cometh

Bespoke Premium is renowned for having what many clients believe is the most comprehensive and unique earnings season coverage around.  With the third quarter reporting period beginning next Wednesday after the close when Alcoa (AA) reports, we've been charging up our charts, tables, and databases for the coming earnings rush all week. 

Prior to the start of earnings season next week, we'll release our interactive earnings season calendar that provides unique earnings information for every US stock set to report in the coming months.  We'll also be publishing which stocks we expect to be the daily winners and losers of earnings season in our Morning Lineup and B.I.G. Tips reports.  And for investors looking for even more earnings info, our Premium Plus members can use our Interactive Earnings Report Database to find out just how their stocks should trade on their report days no matter what the scenario.  If you want to be prepared for earnings season, you won't be disappointed with Bespoke Premium or Premium Plus.

While the bottom line numbers usually get all of the attention, many investors turned to the top line revenue numbers last earnings season to distinguish the winners from the losers.  While the majority of companies ended up beating earnings per share estimates last quarter, the percentage of companies beating revenue estimates was actually weak compared to historical averages.  In the chart below, we highlight the revenue "beat rate" on a quarterly basis going back to the end of 2001 (for all US stocks that had revenue estimates).  The historical quarterly average since 2001 has been just above 62%, and while last earnings season was better than the prior two, it was still 11 percentage points below average.  As we enter the third quarter reporting period, investors will continue to focus on this revenue "beat rate" to see if the top line can finally make improvements like the bottom line did in recent quarters. 

Click here to visit Bespoke Premium and learn more about our unique, actionable research products.

 

Breadth Takes A Nose Dive

Below we highlight one-year charts of the percentage of stocks above their 50-day moving averages in the S&P 500 and its ten sectors.  After coasting along at 80% or higher for a couple of months, the percentage of stocks above their 50-days in the S&P 500 has fallen to 53% in a matter of days.  Had we not rallied off the morning lows today to move into positive territory, the percentage would have probably fallen below the 50% threshold for the first time since mid-July. 

While the S&P 500 as a whole remains above 50%, there are three sectors that currently have less than 50% of stocks trading above their 50-day moving averages -- Industrials (43%), Materials (47%), and Utilities (31%).  The Financial sector is currently right at 50%.  Constumer Staples has held up the best with a current reading of 71%, while Energy ranks second best at 60%.

Investors who would like to track this breadth indicator on a regular basis can do so with a subscription to Bespoke Premium.

 

 

 

 

 

 

Brazil Catches A Bid

While Chicagoans suffered a blow at 11:30 AM ET this morning when the IOC voted the city out of the running for the 2016 Summer Olympics, investors in Brazil saw a nice jump-up in stock prices on the news (see chart below).  The Bovespa continues to rally intraday as the final vote between Madrid and Rio nears, and Brazil is now heavily favored to win.  If Brazil does win, there will most likely be quite a few business articles published in the coming days telling investors to buy the Brazil ETF -- EWZ.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Intrade 2016 Olympics Odds

For those wondering who will be selected to host the 2016 Summer Olympics today, prediction markets website Intrade.com has the odds pretty much up in the air.  Traders are currently putting the odds for Chicago to win right at 50%, while odds for Rio de Janeiro are not far behind at 45%.  As shown in the chart below, Chicago's odds have fallen from a high of 64% a few days ago down to a current level of 50%, so it looks like it's going to be a close call in Copenhagen today.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

September's Gain Down the Drain

That was fast.  In less than two trading days, the S&P 500 has now erased all of its gains from September.  Based on the futures, the S&P 500 is poised to open down more than 1% at a level of about 1,013.  This is more than seven points below the index's closing price from August 31st.  Even after today's weak open, however, the S&P 500 still has a ways to go before the lows from September come into play (991.97).

Bespoke Readers Expecting A Weak Report

From our jobs report poll last night, Bespoke readers voted overwhelmingly that today's jobs numbers would come in worse than expected.  As shown below, 73% believe the nonfarm payrolls report will show a larger-than-expected job loss, and 79% believe the unemployment rate will come in higher than 9.8%.  With so much negativity heading into the 8:30 AM ET release, an inline or even moderately worse than expected report might not be met with as much selling pressure as some might believe.

  

Tomorrow's Employment Report

The media is touting tomorrow's jobs report as the "most important in history."  This will be the 9th jobs report this year, meaning this is the 9th time it has been the "most important in history" as well!  The consensus estimate among economists is for a loss of 175,000 jobs in September.  Economists are also looking for an unemployment rate of 9.8%.

We're asking Bespoke readers to play economist tonight and tomorrow leading up to the 8:30 AM ET release by taking part in the two polls below.  Will the nonfarm payrolls report and unemployment rate come in better or worst than expected?  Please answer the two questions below, and we'll post the results before tomorrow morning's release.  Thanks for participating!

Will tomorrow's Nonfarm Payrolls report be better or worse than the current estimate of -175k jobs.
	Better (less jobs will be lost)
	Worse (more jobs will be lost)
Free polls from Pollhost.com

Will the unemployment rate come in above or below 9.8%?
	Above 9.8%
	Below 9.8%
Free polls from Pollhost.com

4th Worst Start to October Ever

Today's 2.58% decline in the S&P 500 was the worst first trading day of October since 1998, and the fourth worst since index data begins in 1928.

Subscribe to Bespoke Premium to find out what the market has done in the past following down starts to October.

Follow Bespoke on Twitter: www.twitter.com/bespokeinvest.

Estimated S&P 500 Earnings Growth

As it stands now, estimates are for S&P 500 earnings to decline 22% in Q3 '09 versus Q3 '08.  Below we provide a graph that shows how estimates have changed since the start of July.  At the start of the second quarter reporting period, estimates bumped up slightly to near -20%, but they steadily declined down to more than -22% by September.  Since bottoming in early September, estimates have inched slightly higher to where they stand today.

Once we get through Q3, earnings are finally expected to grow again on a year-over-year basis.  While earnings will still be relatively weak, the fact that they were so bad in late 2008 and early 2009 allows the year-over-year numbers to be positive.  At least they're headed in the right direction.  As shown below, current estimates put YoY EPS growth in Q4 at +62.6%, +25% in Q1 '10, and +21.4% in Q2 '10. 

 

S&P 500 10-Day A/D Line Makes First Lower Low Since July

In a sign that the current sell-off may be the beginning of a more meaningful decline, the S&P 500's 10-Day A/D line is making its first lower low since July.  The 10-Day A/D line measures the 10-day rolling total of the net percentage of S&P 500 advancing on a daily basis. 

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

S&P 500 Testing Support

The S&P 500 is currently trading down 1.3% intraday, and another down close would mark the 7th day of losses in 9 trading days.  After bouncing back intraday yesterday, the S&P once again fell sharply this morning following another economic indicator (ISM) released during the trading day.  As shown in the charts below, the S&P 500 is trading just above support at 1,041 at the moment.  If 1,041 fails to hold, the 50-day at 1,021 would be the next level that traders look to for support.  While the longer-term uptrend remains, the action over the last 10-15 days has been nothing to write home about.

The Top 25

As we enter the first trading day of the last quarter of 2009, below we provide a list of the 25 best performing stocks in the Russell 3,000 through the first three quarters of the year.  All 25 stocks are up more than 500% year to date, and 9 are up more than 1,000%.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

China Goes From Best to Worst in 2009

After leading the BRIC countries (Brazil, Russia, India, China) in year-to-date performance by a wide margin a few months ago, China is now doing the worst.  As shown below, Russia's stock market is now doing the best in '09 with a gain of nearly 100% (98.5%).  India is up the second most at 77.5%, followed by Brazil at 62.4%, and finally China at 52.6%.  And while the other three BRIC countries remain in nice uptrends, China looks quite the opposite.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

More From Bespoke

Twitter users can now follow us at www.twitter.com/bespokeinvest.

Was the Chicago PMI Leaked?

Conspiracy theorists are buzzing this morning regarding the release of the weaker than expected Chicago PMI.  Economists were expecting a level of 52.0, but the actual level came in well below 50 (46.1).  Even though the report was released to the general public at 9:45 ET, the S&P 500 began its nosedive minutes before the official release of the report.  At first glance, most would agree that the report was leaked.

 

While everyone likes a scandal these days, a deeper look at an intraday chart of the S&P 500 and the firm that compiles the Chicago PMI (Kingsbury International) shows that there was most likely nothing nefarious taking place.  The S&P 500 certainly did decline prior to the official release, but traders should be aware that anyone who wants early access to this report can do so provided they are willing to pay for it. 

On the company's website, Kingsbury describes the Chicago PMI as, "a proven monthly ‘first look’ at business, government and NGO economic activity in the USA."  They then go on to say that subscribers to Kingsbury's data will receive "access to this market-moving data 3 minutes before public release."  In other words, Kingsbury will 'leak' the report to anyone who is willing to pay at least $200 per month.

With this information in mind, another look at an intraday chart of the S&P 500 shows that today's decline began at 9:42, which was (not coincidentally) three minutes before the official release of the Chicago PMI when Kingsbury alerts their subscribers to what the official release will be.  While there appears to be nothing illegal taking place, it does provide another example of how the market is stacked against the individual investor.

 

Crude Oil Inventories Continue to Rise

This morning's release of the weekly energy inventory report from the Department of Energy showed that crude oil inventories increased by nearly 2.8 million barrels, which was 1.8 mln barrels more than expected.  With inventories up by 2.8 million barrels for the second month in a row, they remain well above their historical average.

Best and Worst Performing Stocks Since Their Last Earnings Report

The second quarter reporting period is fast approaching as we enter the month of October.  Since the last earnings season ended with Wal-Mart's report on August 13th, the S&P 500 is up 4.73%.  From our Interactive Earnings Report Database, we grabbed all stocks that reported last earnings season and calculated their performance since their last earnings report.  This performance is calculated from the close on the first trading day following their earnings reports, so it does not include the big initial one-day moves.

As shown below, YRCW is up the most since its last earnings report with a gain of 231%.  YRCW is followed by GCI (+161%), UAUA (+147%), BPOP (+146%), and ATPG (+136%).  There aren't many big names on the list of winners, but the stocks that did make the list did something to grab investors' attentions.  ARRY has done the worst since its last report with a decline of 43.5%. 

Of the 2,221 earnings reports in our database from the last reporting period, 1,763 (79.4%) stocks are up since their last report while 458 (20.6%) are down. 

Subscribe to Premium Plus to become a Bespoke Premium member and also receive our Interactive Earnings Report Database.

  

Year Over Year Change in Home Prices

A reader asked that we provide the year-over-year changes in median home prices following our earlier post on the Case-Shiller numbers today, so we have done so below.  As shown, the composite indices are still down about 13% year-over-year, but this is up from the -20% readings we saw earlier this year.  Las Vegas is down the most year-over-year at -31%, followed by Phoenix (-28%), Detroit (-25%), and Miami (-21%).  These four cities are the only ones with year-over-year declines of 20% or more.  Boston, Denver, Dallas, and Cleveland are all at -5% YoY or better.

We also provide long-term charts of the year-over-year percentage change in median home prices for the 20 cities that S&P/Case-Shiller tracks along with their 10-city and 20-city composite indices.  Some cities look to really be turning the corner, while others are still dragging.

Chinese ADRs Still Holding Near Their Highs For the Year

While the Shanghai Composite looks to be on the path to new short-term lows, Chinese ADRs continue to hold up well.  In the chart below, we compare the YTD performance of the Shanghai Composite to our basket of Chinese ADRs with market caps of more than $250 million.  The Shanghai Composite is currently up 51.28% in 2009, which is down considerably from its highs in August.  Chinese ADRs, on the other hand, are still up 95.9%, which is right near their highs for the year.

Subscribe to Bespoke Premium or Premium Plus to receive more in-depth research from Bespoke.

Gains in Home Prices Off the Bottom; Cleveland Up 11.4%

The July Case-Shiller home price numbers were released today, and while the year-over-year numbers are still down nearly 13% in the 10-city composite index, all cities but one (Las Vegas) are off their lows.  Below we highlight the percentage change from the recent bottoms in median home prices for the 20 cities that Case-Shiller tracks. 

As shown, 10 cities are doing better than the composite indices, and 10 cities are doing worse.  Cleveland has seen the biggest gain in home prices off its low at +11.4%.  San Francisco ranks 2nd at +9.4%, followed by Minneapolis (+9%), Dallas (+7.9%), and Denver (+7.1%).  All of these are pretty big gains, and these numbers are just through July.

The composite 10-city and 20-city indices are up 3.6% from their lows.  Miami, New York, Tampa, Detroit, Seattle, and Las Vegas are the six cities that have seen gains of 2% or less.

9/29/08: The Day Sevens Weren't Lucky

In any other time, Monday September 29th, 2008 would have already been a monumental day.  With markets still reeling from among other things, the collapse of Lehman, the bailout of AIG, and Washington Mutual having recently been placed into receivership by the FDIC, investors had just finished dealing with another weekend where the Financial sector looked considerably different on Monday morning than it did the prior Friday.  Over the weekend, Washington lawmakers worked on getting the necessary votes to pass the $700 billion bank bailout, and on Sunday the AP reported that an agreement had been reached.  The bill would be put to vote on Monday.  Barney Frank said he was confident the bill would pass, albeit by a slim margin.

As if that wasn't enough, on Monday, Wachovia traded down 80% from ($10 to $2) after news broke that Citigroup would acquire its banking operations and the FDIC would guarantee any losses beyond $42 billion.  It was shaping up to be just another day of the credit crisis with the averages each opening down between 2% and 3%.  While it was a big decline, there was some hope that markets would recover in the afternoon when Congress passed the bailout bill in the afternoon.

By the time voting began at 1:28 PM ET, stocks were still down sharply but had stabilized from the declines at the open.  Shortly after the vote began, the 'nays' outnumbered the 'yeas', but given lawmakers had said they had the votes to pass the bill, this early trend wasn't too troubling.  After all, Congress wouldn't just do nothing would they?  After more minutes passed, however, traders began to worry as the count of 'nays' started pulling away from the 'yeas'.  The market quickly went into free-fall.  Eighteen minutes after the vote began, the S&P 500 had doubled its losses and was now down over 7%. 

What everyone thought wouldn't happen did.  At the end of the day, the major averages finished down more than 7%, and the DJIA had its largest point decline in history with a loss of 777 points.  Nearly 200 of these points came in the minutes after the close as the crush of last minute sell orders were delayed in hitting the tape.

While last year's 777 point decline in the DJIA was its largest ever, in percentage terms, it didn't even crack the top ten.  While the credit crisis caused one of the largest peak to trough declines in the index's history, only one day (10/15/08) made it to the top ten in percentage declines. 

While it seems like the market only went down last year, many of the Dow's best single day performances also came during the credit crisis.  Seven of the DJIA's top ten single day point gains and two of the ten best single day percentage gains came during the credit crisis.  In other words, in terms of largest single day moves in points and percentages, the credit crisis saw more "best ever" than "worst ever" days!  They don't say good days happen in bad markets for nothing.

Finally, the failure of Congress to pass the bank bailout has been cited as the main factor behind the decline in equity markets on September 29th, 2008.  The following day, the headline on the Journal's "Markets" column read, "Dow Falls 777.68 Points on Bailout's Delay."  The column then went on to quote traders who said, "This is negative and it is a failure of leadership in Washington on both political sides."  Reacting to the behavior of Congress, another trader commented that, "We thought the adults would show up."  So the general consensus was that Congress's failure to pass the bill led to the record decline.

While the reaction was swift, lawmakers in Washington appeared to quickly come to their senses.  On October 3rd, Congress took the bill up for vote again and it passed.  Later that day, President Bush signed it into law. Given the passage, one would assume that stocks would rally or at least stabilize right? 

Ironically, the DJIA not only declined 1.5% on October 3rd, but it fell another 3.6% the next day (10/6), and the selling didn't stop there.  Selling intensified on the 7th with a decline of 5.1%, and then fell 2.0% on October 8th.  Topping that off, the DJIA then went on to fall another 7.3% on October 9th.  This five day decline of 18.2% was the worst five-day decline of the credit crisis, the worst since the 1987 crash, and the third worst ever.  All of this came after the passage of a bill that was meant to stabilize the Financial markets.  As was the case with most events of the credit crisis, markets were damned if they did, and damned if they didn't.

Subscribe to Bespoke Premium or Premium Plus to receive more in-depth research from Bespoke.

Bespoke's Paul Hickey on Bloomberg TV on 9/29 at 7:10 AM

Bespoke's Paul Hickey will appear on Bloomberg TV on Tuesday (9/29) at 7:10 AM ET to discuss Bespoke's current outlook on the market.

Dollar (Yin) vs. Stocks (Yang)

In response to last week's post on the inverse relationship between the dollar and stocks, some readers asked how the relationship between the two assets has played out on a longer term scale.  The chart below highlights the performance of the S&P 500 and the US Dollar Index since 2003.  In this chart, the dollar is not plotted on an inverse scale.  As shown, the two charts have consistently been moving in opposite directions.  As long as this trend continues, what's good for the dollar is bad for stocks.

Subscribe to Bespoke Premium or Premium Plus to receive more in-depth research from Bespoke.

Oil to Natural Gas and Platinum to Gold Ratios

With oil's decline and natural gas' rise over the past few weeks, the ratio of oil to natural gas has declined quite a bit.  As shown below, the oil/natural gas ratio hit a 20-year high recently as natural gas collapsed.  The ratio is still very high compared to historical levels, but it is down from 27 to 17 since the start of the month.

The platinum to gold ratio has also begun to reverse the downtrend it had been in since early 2008.  At the end of 2008, gold actually traded above the price of platinum, bringing the ratio below 1 for the first time in years.  With the economy getting back on track, platinum has outperformed gold, and the ratio is back up to 1.28.  This is still, however, far below the range that the ratio was trading in throughout most of this decade.

Subscribe to Bespoke Premium or Premium Plus to receive more in-depth research from Bespoke.